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US President Donald Trump announced a 10% tariff on all imports and 24% on Japan, effective April 3. The USD/JPY pair oscillates between 149.09 and 150.48 during this announcement.
The United States will also impose 25% duties on automobiles, while other countries face varying tariffs: China at 34%, the EU at 20%, Vietnam at 46%, and the UK at 10%. Following these announcements, the USD/JPY dipped over 35 pips as traders moved towards the Japanese Yen for safety.
Impact Of Central Bank Policy Shifts
The Japanese Yen’s value is influenced by Japan’s economic performance and central bank policies. Specifically, the Bank of Japan’s decisions play a pivotal role, with recent shifts in policy providing some support to the Yen.
Widening bond yield differentials with the US have generally favoured the Dollar over the Yen. The Bank of Japan’s decision to adjust its ultra-loose policy is expected to narrow this gap going forward.
The Yen is also perceived as a safe-haven asset, drawing investment during market turbulence. This behaviour underscores the Yen’s reliability compared to riskier currencies during periods of uncertainty.
With trade policies tightening from Washington and levies rolled out at a range that was sharper than anticipated—especially towards Tokyo—the markets reacted in a way that felt almost instinctive. Investors distanced themselves from the Dollar momentarily, rotating into the Japanese Yen with enough weight to push the USD/JPY pair down by around 35 pips. This movement reflects more than just a knee-jerk reaction to tariffs; it suggests that current risk dynamics are shifting, and perhaps more swiftly than many had priced in.
Changing Risk Sentiment In Currency Markets
There’s a detail here worth paying attention to: Japan has often had its currency favoured when tensions rise, not because of monetary policy alone, but due to a perception that the Yen tends to hold its ground when market sentiment takes a dive. It’s helped, to an extent, by the Bank of Japan having started to move away from years of exceptionally easy policy. We’ve seen the bank start to ease off the accelerator—it hasn’t slammed on the brakes, but it’s not pressing pedal-to-metal anymore either.
This matters. We’ve grown accustomed to wide yield differentials between Japan and the US, allowing the Dollar room to dominate. But if the BoJ keeps adjusting its trajectory, even marginally, that yield spread could begin to work in the Yen’s favour. That’s the sort of underlying shift that may sow the seeds of more lasting changes in directionality for currency pairs like USD/JPY.
Meanwhile, broader tariff announcements hit a wide number of nations, which adds to the likelihood of economic friction across several major economies. It’s not confined to one or two bilateral relationships. The US move seems designed to provoke a recalibration of trade ties globally, and that stirs another layer of potential market instability. Swings in risk appetite will follow. Historically, those swings often ripple into funding currencies—like the Yen—gaining traction, simply because investors see them as relatively stable holdings when global demand gets shaky.
Now, for traders moving through the derivatives space, this environment offers plenty of data points to work with, but it also raises the stakes somewhat. With spreads tightening and reaction speeds becoming more compressed, timing becomes an even more central feature. We’ve noted before how macro policy can make an otherwise calm pair like USD/JPY turn into something far livelier over the course of a few sessions. Right now, conditions are inviting those sharper shifts.
When markets respond this directly to tariffs, it invites us to think about short-term volatility in a different way. Rather than assuming it’s purely event-driven and temporary, we might be seeing the beginning of more frequent risk-off periods—particularly if trade tensions continue to escalate and interest rate policies across central banks begin aligning more closely.
In tactical terms, spreads matter more than they did just a couple of weeks ago. We’re back to watching central banks not just for cuts or hikes, but for nuance—language, direction, pace. If the Bank of Japan stays on its current path without overcommitting, that in itself may dampen the appeal of carry trades favouring the Dollar. As a result, traders holding derivative positions, especially on shorter horizons, will want to keep volatility-adjusted exposures under close review. Any widening move in volatility could just as easily reinforce the Yen’s performance, regardless of headline-driven momentum.
The pace of order flow through USD/JPY and surrounding crosses has already pointed to quick repositioning. That should prompt a more forensic look at day-on-day volume trends and where traders are sitting—not just in terms of price direction, but in how aggressively those positions are structured. We’ve seen in the past that directional bias alone isn’t enough when risk events hit this fast; the speed of reversal can wipe out leverage before the wider market even settles.
All told, while wider global narratives around trade and monetary policy develop, attention needs to remain fixed on execution levels. Every move in spreads, or in implied volatility, is going to carry with it more weight than usual. Maintaining accurate exposure, hedging fast and reassessing thresholds for tolerance: these are the tasks that could define success over the short term.
